Calibrating the right amount of investment management and advice to be handled by humans and "robos" is going to prove one of the most important challenges as developments around automation in the wealth industry accelerate.

With all the talk right now about the ascent of robo-advisors (see a recent report exclusively published by this publication here) one of the issues that presents itself is ensuring that technology is not just traded faddishly, or seen as a quick and easy way to cut costs without thinking about the longer term impact on the industry’s reputation. In this article, one of these “robos”, Cardiff-based Wealthify, discusses some issues. The article is by Dr Richard Theo, the firm’s chief executive. The editors of this publication are pleased to share such insights and invite reader responses; as ever, the editors don’t necessarily endorse all views of guest contributors.

The robots are here! But before you run for the hills, we’re talking R2D2 from Star Wars, rather than Daleks. This means benevolent machines, doing our heavy lifting, but better, faster and more reliably. Across almost all sectors, automation and digitisation are transforming our daily lives.

The world of investing is no exception. Robo-investing and robo-advice are on the verge of a major breakthrough in the UK. Consulting firm A T Kearney estimates the rapidly-expanding sector is set to grow 68 per cent annually, and could be worth $2.2 trillion globally by 2020. Around half of this is expected to come from assets already invested with traditional managers, which is why big brands are looking to get in on the act – InvestTec Wealth, Brewin Dolphin, Hargreaves Lansdown and Barclays are all believed to be launching robo services in the UK this year. And they are unlikely to be the only ones.

“Robo” here has been adopted as a loose, catch-all term for removing humans from various parts of the investment process and replacing them with automation, algorithms and slick digital platforms. It covers a spectrum of different models, from robo-advice, which recommends investments based on information about lifestyle, goals, risk profile and savings, to robo-investing, which usually refers to cases where algorithms select and potentially trade a portfolio on someone’s behalf.

There is every reason to welcome this concept, not as a fad, but as a viable, mainstream investing channel for everyone. Why? Because the vast majority of ordinary people are priced out of traditional wealth management services – a typical IFA, for instance, won’t sit dow with a client with less than £20,000 to invest. Meanwhile, the average saver’s cash is rotting away in high street accounts earning record low interest rates averaging around 0.25 per cent per year.

In short, there’s a desperate need to make investing easy and convenient: to help ordinary people to grow their money and shore up their financial future. And with a quarter of Britons having less than £3,000 saved (according to data from Wealthify) the solution must also be low-cost and affordable for the mass market who aren’t willing to pay £150 per hour for financial advice. Robo-investing, with its far cheaper operating models, holds great promise as a way to achieve this overdue democratisation of saving and investments.

But it’s not just cost that is driving accessibility. Robo changes how people access investment services. Anyone, anywhere (with an internet connection) can take advantage – not just those who have the time or inclination to find and visit a good financial advisor or investment manager. It’s instant and agile services like this that appeal most to the younger generation and leave banks and traditional providers scratching their heads as they try to work out how to compete. Robo works for those accustomed to polished online services, especially those who aren’t particularly loyal to the big, and in some cases, damaged financial brands.

So robo ticks the accessibility box, but when it comes to managing investments, modern machines are in many respects a lot better than humans.

Being successful in today’s complex financial markets is a matter of processing and analysing tremendous amounts of data as quickly as possible - a task for which computers will always have the upper hand as their precision and computational power far exceeds any humans. Successful investing also requires discipline and consistency; humans are prone to bias, panic and emotional decision-making, all of which can spell disaster for an investment portfolio. It’s precisely why many of today’s top institutional investors are becoming increasingly reliant on algorithms and automation, and across financial services fintech is driving huge improvements in customer experience, security, risk management and operational efficiency. Today it’s power to the programmer, technology is centre stage.  

But in the complex world of financial services, while technology often has a starring role, achieving the right balance of human and machine is crucial. Humans still have an important part to play – it will just be different to that of the traditional investment manager. Robots are great at the ‘heavy lifting’ but we’ll always need investing professionals to design, build, and tweak the algorithms, and ultimately to keep a watchful, reassuringly human eye on the money.  

If Sci-Fi has taught us anything, it’s that a robot is only as good as its programming. Provided those in the financial services industry remember this, investors should welcome their new financial robo assistants with open arms.